Qualified Remodeler

Cautious Optimism

Home professionals are cautiously optimistic for 2019, projecting growth in revenue and profits, despite challenges from rising material costs and labor shortages, a new Houzz survey reports.

Home renovation professionals are cautiously optimistic about business for 2019, with plans for increased hiring, despite a tight labor market, rising costs and deceleration in annual growth rates. That’s according to a new study completed by Houzz Inc., a leading platform for home remodeling and design based in Palo Alto, CA.

The survey, which polled nearly 4,800 professionals in the Houzz community, shows companies across all segments of the home remodeling industry citing a positive outlook for 2019. Industry segments were broken into categories including architects, interior designers, general contractors/remodelers/builders and design-build, among others. Although there was no separate category for kitchen and bath dealers and designers, the majority of kitchen and bath pros participating in the survey were included in the interior designer or design-build category, according to Houzz.

SLOW GROWTH

Despite some challenges ahead, revenues have continued to rise, driving continued optimism, with more than half the companies saying their 2018 revenues met or exceeded their expectations.

For 2019, those projections continue to show growth, with 74% of interior designers, 72% of design-build firms, 71% of GCs/remodelers/builders and 49% of architects expecting increases in revenue (see Graph 1).

While increased revenue doesn’t always translate to increased profit, especially in times of rising material and labor costs, those polled were also largely optimistic about profits for 2019. Some 70% of interior designers expect to see increased profits in 2019, according to the survey, while 66% of design-build firms, 63% of GCs/remodelers/builders and 46%
of architects project profit increases this year (see Graph 2).

That optimism is not surprising: According to Houzz principal economist Nino Sitchinava, “Residential construction and design service professionals large and small have sustained a remarkable multi-year run with upper-single to double-digit revenue growth.”

While the Houzz report projects a deceleration in average growth rates in 2018 (5-8 percent compared to 8-11% in 2017), Sitchinava believes “the recent deceleration in growth of construction services is likely a function of capacity constraints due to labor shortages, rather than a contracting demand.”

Growth for 2019 is expected to continue to progress at a slower pace, thanks primarily to increases in material and labor costs. Interior designers polled are currently projecting growth of 9.4% in 2019, compared to 11.1% in 2018, while design-build firms project 8.4% growth, compared to 9.9% in 2018. Architects expect to see growth of 5.1% this year, compared to 6.9% the previous year, while GCs/remodelers/builders are projecting growth of 8.7%, compared to 10.5% in 2018.

This growth can also be reflected in demand for added help; despite challenges in labor availability and rising costs, some 20% of survey respondents in design-related industries and more than a third of those in construction-related industries say they are planning to hire additional staff in 2019, the survey reports.

While facts and figures support these growth projections, attitude also plays a role in how the industry evolves. When asked to report on their overall business outlook for 2019, most of those polled were upbeat, with 78% of interior designers, 58% of architects, 79% of design-build firms and 78% of GCs/remodelers/builders describing their business outlook for 2019 as “good” or “very good.”

That said, attitudes about the national economy were mixed, with more survey respondents expecting the national economy to worsen than improve in 2019.

RISING COSTS

But while business remains strong, rising costs continue to present challenges for kitchen and bath and other industry professionals. Only 13% of interior designers expect to see improvements in labor availability this year, compared to 39% who expect it to worsen (see Graph 3), and only 5% expect to see improvements in labor costs, while 41% believe these costs will rise (see Graph 4).

Similarly, far more architects and design-build firms believe labor availability will get worse (33% and 47%, respectively) than get better (14% and 18%, respectively), and fewer than 10% of those polled expect to see improvements in labor costs. Among GCs/remodelers/builders, 17% expect labor availability to improve compared to 46% who think it will worsen, while 13% expect labor costs to improve compared to 49% who expect these costs to rise.

Rising material costs and decreased availability are also creating some challenges, with availability more of an issue for GCs/remodelers/builders (see Graph 5), with 45% of those polled citing availability as worsening, compared to fewer than 20% of interior designers, architects and design-build firms.

However, rising material and product costs were cited as problematic across the board, with 60% of design-build firms, 57% of GCs/remodelers/builders, 56% of interior designers and 53% of architects citing worsening product/material costs (see Graph 6).

When asked to list their biggest cost drivers overall, interior designers cited products/materials (55%), advertising/marketing (41%), employee wages or benefits (35%) and subcontractors (35%). For architects, the biggest cost drivers among those polled were employee wages or benefits (51%), office equipment/software (42%), advertising/marketing (35%) and business insurance (33%), while for design/build firms, the line items driving up their costs the most were products/materials (72%), subcontractors (58%) and employee wages or benefits (57%). For GCs, remodelers and builders, the biggest cost drivers were products/materials (78%), subcontractors (64%) and employee wages or benefits (48%).

CHALLENGES

When asked to cite their top challenges in 2018, managing consumer costs and expectations were commonly heard refrains. Among interior designers, managing consumer concerns about costs was the top concern (35%), followed closely by managing consumer expectations (34%) and a shortage of subcontractors (32%). Likewise, for architects, the top concerns were managing consumer expectations (39%) and managing consumer concerns about costs (38%), followed by increased cost of doing business (22%). Design-build firms noted their top challenges as increased cost of doing business (42%), shortage of subcontractors (38%) and difficulty hiring/being understaffed (37%); while GCs/remodelers/builders named top concerns as increased cost of doing business and shortage of subcontractors (42% each), and difficulty hiring/being understaffed (31%). ▪

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